Black-market cigarettes costing NY $20M a month
New York - The underground tobacco market is spreading like a fast-growing cancer in the wake of tax hikes that make New York cigarettes the most expensive in the nation -- and it's costing the state tens of millions a month in lost tax revenue, a Post analysis has found.
Illegal cigarettes are pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China, authorities say.
Government data show that New York state is being smoked out of as much as $20 million a month from all these illegal cigarette purchases -- an estimated 7.3 million packs a month sold off the state tax radar.
"It's an unfortunate side effect of the taxes, creating this black market," said Ron Turk, special agent in charge of the Bureau of Alcohol, Tobacco and Firearms' New York field office.
Sales of taxed cigarettes have plummeted 27 percent since July, when state lawmakers raised the excise tax to $4.35 a pack on top of the city's tax of $1.50, making the average price of Marlboros here $11.60, with some shops charging as much as $14.
About 30 million packs are being sold legally each month -- down from 41 million packs a month before July.
The plunge far exceeds tobacco-control experts' predictions that sales would fall 8 to 10 percent, indicating that smokers are finding other means to get their nicotine fix.
In fact, the New York Association of Convenience Store Owners estimates that as many as half of all cigarettes consumed in the state lack proper tax stamps.
And law enforcement is also worried that the easy cash will spark rivalries among criminal gangs, just as drugs have.
"We see lots of [rip-offs] and violence with drug trafficking, and you will see a rise of that in tobacco, too. As volume and money go up, the stakes get higher. And certainly, a concern of ours is violence will spill out of this," Turk said.
Alleged gun-running and terrorist-loving ex-Stuyvesant HS teacher Theo Burroughs, busted in a sting two months ago, was trafficking in untaxed cigarettes along with assault rifles and handcuffs, authorities said.
Still, state officials maintain the tax is worth it as an incentive for people to quit -- and the higher tariff makes up for the bootleg losses. Cigarette taxes brought the state $139 million in October of this year compared with $108 million in October 2009.
While some smokers take advantage of tax havens on Indian reservations or cheaper-tax states like New Jersey or Pennsylvania, plenty of New Yorkers just need to go to their corner deli.
The Post bought an $8 pack of Marlboros on Tuesday from Top Tobacco Shop at 107 Clinton St. on the Lower East Side. The store already has a case pending before the Manhattan District Attorney's Office after being busted with two cartons of untaxed cigs on Oct. 27, and its license to sell tobacco was yanked.
A reporter handed over a $10 bill, and the clerk reached his hand through a window near his counter and grabbed a pack stored outside.
The clerk handed over the contraband cigarettes, along with $2 change. The Marlboros lacked any kind of tax stamp, indicating they came from either overseas or an Indian reservation.
The clerk, Mohamed Ould Lemrabott, declined to comment when asked how he could sell them so cheap.
"It appears some small retailers found it impossible to compete with tax-free competitors because of their reliance on cigarettes to drive retail traffic," one tax-policy observer said. "They've created a climate of desperation. Five years ago, 10 years ago, they wouldn't think of underhanded dealing."
In addition to buying the contraband cigarettes out of state or on reservations, authorities are reporting a troubling rise in counterfeit cigarettes being imported from overseas, especially China.
Another growing trend is forging tax stamps to make the contraband smokes appear legal.
One of the ATF's largest local busts occurred in southern Brooklyn in 2007, when it arrested eight men for importing Chinese-made knockoff cigarettes and seized 500,000 cases of smokes and $500,000 in cash.
The ATF, which has 10 officers in the New York City region -- and just three to four officers at any given time working on tobacco cases -- is retooling to address the expected spike.
"We are talking with state and local partners now of doing partnerships we haven't done in years," he said.
On the state level, about 50 peace officers assigned to the New York State Department of Taxation continue to do buy-busts of local bodega owners.
But the officers gripe that offenders often get off with little more than a wrist slip.
For instance, Jiang Ailiang was busted for selling cigarettes with Virginia tax stamps at a deli at 67 Eldridge St. for just $5 earlier this year.
But he was able to plead down to disorderly conduct in September and received just four days of community service.
When The Post visited the store earlier this week, a reporter was told to "come back tomorrow" for discounted cigarettes.